Wait now, how does the 401k work? Did you say the employer pays in? Because you DO NOT want to lose out on ANY employer contributions when they're paying HALF! That's an immediate 50% ROI!!! 7% is nothing compared to that gain. If you can delay your contributions without losing any employer contributions, then yeah, wait until the debt is gone. However, my guess is the employers says you can put in a certain amount per year or per paycheque and if you don't match them then you lose that period's potential bonus from the employer.
Having said that, those are merciless rates, and slaying them would be my #2 priority in your shoes, and a major emergency.
Finally, if mortgages, after considering all other housing costs, are the same as rent, then rent must be crazy high where you live or housing super cheap, and that would definitely beat all non-employer-based-401k investments handily in importance.
Priorities:
1. Do not stop capitalizing on employer contributions if at all possible, because 50% ROI is unbeatable.
2. Get into turbo savings mode if you can:
a) sell car, get cheap but working vehicle (unless this is already the case), or much better yet, try to get by on just biking for awhile. If your family could manage this for even a couple years, it would get you out of the rental situation much faster.
b) glad to hear about lower upcoming rent!
c) Take a close look at that grocery bill: consider cutting out meat, cheese, dairy, all food 'products' (stick to whole foods), and buy more grains, beans, inexpensive veggies. You could put the kid on a separate, more expensive diet if you're concerned for him/her, depending on the age (if breastfeeding, same would apply to your wife / you (if you're the lovely lady - sorry, don't know which!), and you can use a quality multivitamin to supplement your diets if you're concerned about cutting some things out (Progressive is high quality, and 33 cents per vitamin, which could be per day). Groceries are a major saving point! Look into Costco too (I just started, and it's awesome).
d) Look at any phone and cable bills if you have them, and wipe them out as far as you can. No landline, just a couple cells with minimal plans. Same for internet: nothing you don't need or can't use.
e) check out this link for more ideas (it's on the first tip, which may not apply, but they're in order of importance, so keep going):
http://earlyretirementextreme.com/day-1-finding-a-place-to-live.html 3. Hopefully, with the increased power from point 2, you can focus serious firepower on the evil debt motherships. BURN EM. I would focus these over the downpayment for the sake of stability, but if you do the math and the savings from switching to home ownership is ludicrous, switch to point 4. Otherwise, kill the debts fast and furious. No mercy.
4. Now downpayment like crazy if the savings are that awesome.
5. Once you have a house, with the lower associated costs for your area, you can pick the greater of the two benefits: if your interest on the house is high, pay that off first, but if the gains from ivestments are higher, pay into those a fair bit. You can pay into both to diversify, etc. This is an area I know less about, having no investments yet, nor a mortgage (between work and school, so I'm more focused on how not to spend).
Points 1-3 I think are super important. If you can do all three, you'll be dealing with the biggest emergencies (I think).
Maybe someone can call me on this if I'm wrong about the employer contributions? I'm always up for criticism. :)